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Wednesday, October 06, 2004

Flu Vaccine Shortfall, Yet Again

Yesterday, Chiron corporation, which supplies about half of all U.S. flu vaccine, announced that it was suspending production, due to contamination problems uncovered by British regulators. Although this year's shortage will be particularly severe -- the CDC is calling for those at low risk of flu to voluntarily forgo flu shots -- it isn't unusual. There was also a shortage of flu vaccine last year and in 2000. Other vaccines are also regularly in short supply.

James Bernstein, writing in Newsday, attributes the shortages to the fact that "only two major companies in the world manufacture flu vaccines...Experts say making vaccines is not a good business." Actually, however, there are only two companies licensed to sell flu shots in the U.S. Britons, for example, obtain their flu vaccine from six different companies, and so aren't expecting a shortfall.

Bernstein's claim that it's hard to make money selling vaccines is also disputed by a surprising source: Chiron, which says that flu vaccine prices have risen enough to justify substantial investment in the U.S. market. Chiron's president testified before Congress earlier this year, "Pricing of influenza vaccines has reached a level that allows manufacturers to invest in maintaining facilities to meet FDA standards and in expanding manufacturing capacity in order to meet the increased demand." Prices have risen in the past few years because 3 of the 5 former manufacturers have left the U.S. market.

Last time around, Conservatives blamed this situation on price controls and legal liability issues, and no doubt they will again. Both of these explanations are truly a triumph of ideology over facts. First, there are no price controls on vaccines in the U.S. The government does buy about half of some vaccines, at discounted prices, and distribute them cheaply, but this isn't a price control. Manufacturers aren't forced to sell, for one thing. For another, the government purchases only small amounts of the flu vaccine (see this GAO testimony).

Liability issues are also a red herring. Vaccine manufacturers managed, almost two decades ago, to persuade Congress to exempt them from liability laws (see the GAO report). People who are harmed by vaccines can be compensated through an arbitration process, but can't win sky-high damage awards. Manufacturers continue to complain that lawyers are able to find loopholes in the exemption, and bring their cases to court. But this is minor, compared to liability issues with pharmaceuticals or other products.

UPDATE: I learn from Mark Kleiman that flu vaccine isn't included in the Vaccine Injury Compensation Program that removes injury cases from the courts for some vaccines. But this is largely because there's been relatively little litigation, and vaccine manufacturers aren't that interested in being included.

I see three possible causes of the persistent shortages, one near and dear to conservatives hearts, two more popular with progressives:
* Misregulation, with the FDA making it too hard to become licensed in the U.S., and closing plants with unpredictably shifting regulations. (See the GAO report).

* Monopoly power. With so few suppliers, it's natural to expect that they would try to raise prices by restricting supply. Remember the California energy crisis of a few years ago, or the world-wide vitamin price fixing case.

* Positive externalities. When deciding whether to get immunized, people don't consider the social benefits: flu-free people can't spread the disease to others. Economists usually call for subsidies to overcome this problem.
I have no idea which of these three problems are the most important.


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